Barriers to Growth and Development
Poverty cycle: A poverty cycle is a seemingly endless continuation of poverty. Once a person or community falls below a certain level of resourcefulness, a chain of events starts to occur that tends to perpetuate the situation: progressively lower levels of education and training leading to lack of employment opportunities, leading to criminal activity (such as sale of illegal drugs) for survival, leading to addiction, shattered health, early death, and breakup of family, leading to even bleaker future for the next generation ... and so on. This cycle continues until someone intervenes by providing worthwhile means (not handouts) for people to climb out of destitution, and by ensuring children's health and education. The poverty cycle is also a great example of a negative feedback loop. If the general income in a country is low, people in that country have less money to save. Additionally, they are unable to save a substantial percentage of their income because they must spend a greater percentage on necessary goods, such as food, making savings low. Since the quantity of loanable funds is low, it is very difficult to borrow money. This discourages investors from taking out loans, which makes investment is low. Since investment is low, there is nothing to raise the general income of the country. Income remains low and the cycle repeats itself. Because you have lower investment power, it is harder for companies to trust their money in your hands. The only way to escape from the poverty cycle is to raise two or more of these three aspects: income, savings, and investment. The most effective is investment if rasied high enough, the cycle could be broken because a great amount of investment has a higher potential to bring in greater revenue for businesses, thus increase in income, which leads to more saving. Institutional and political factors :• Ineffective Taxation Structure:'' A country that cannot tax effectively does not receive a steady flow of income, leading to a unusual, unreliable pattern to government spending, eventually leading to a decrease in development projects. When the taxation systems in a government of an undeveloped country is ineffective, the revenue collected is lower. The ineffective taxation causes the government to provide little or no basic institutions such as education, infrastructure, effective banking systems and health care. When such institutions are omitted in a government the development of that country slows, and may halt competely. : •'Lack of Property Rights: In a country lacking property rights it is more difficult for businesses to start up, since property barriers are in general not respected. People are less likely to buy property. A great example of a country lacking in property rights is North Korea, which is currently in a dictatorship. The result is widespread famine and the country's overall unhappiness. :• Political Instability: Political instability can lay waste to a country's infrastructure, and can prevent government income from being distributed in the manner most likely to lead to development. :• '''Corruption: '''When there is corruption in a government the whole country suffers. The people of living under the rule of a corrupt government do not have the benefit of stable institutions, and thus will have a lower standard of living due to lack of development. This is a likely problem in a developing country because the government rarely does anything beneficial for the country and its people. A corrupt or an instable government will hinder any development in a country. Infrastructure Infrastructure is the foundation of services that an economy needs to function. Roads, water supply and sewers are all types of infrastructure. These necessities need to exist in an economy. A lack of infrastructure prevents an economy from developing. If there are fewer roads in an economy, there will obviously be less transportation, thus making goods more inaccessible to distribute. If there is a lack of water supply, there will be a huge demand for water in addition to immense disease and dehydration problems. People will have overdependence on primary goods and there will not be enough to support everyone. A lack of infrastructure greatly affects a countries ability to grow and develop. Infrastructure is one of the key factor to a developed economy. Without infrastructure an economy doesn't run. If infrastructure within a country is fairly developed the country itself will mimic in it's development level. International trade barriers • '''Overdependence on Primary Products - Overdependence on primary products has a downward trend in its history. Primary products are income and price inelastic. Therefore, even if the economy goes up, it would have little to no effect on the income. A country having only primary goods is unsustainable due to the limited amount of resources. Overdependence on primary products is also the reason why many undeveloped countries are not as developed as they should be. • C''onsequences of Adverse Terms of Trade'' '- Adverse terms of trade can be a barrier to economic growth because it means that import prices have increased in relation to export prices. This would cause an economy to find itself deeper and deeper in debt, and less and less competitive with trading partners. • '''C'onsequences of a narrow range of exports- A narrow range of exports is usually due to a countries’ overdependence on primary goods. These countries often put primary goods as the main focus and overlook the opportunities of producing secondary and tertiary goods. There is also a lack of their products’ diversity. That is because these countries are often good at making a certain good and if there was ever a destruction or depletion of these goods, the exports drop dramatically down. These are the consequences of a narrow range of exports. This is often the reason why it is complicated for less developed countries to become more developed. Due to their heavy reliance on primary goods. • '''Protectionism in international trade- '''Protectionism is the act of putting barriers into place to give domestic industries an edge over foreign competitors. Although domestic industries gain an advantage from proctectionism, consumers do not, because they must pay the price of the implied higher cost for goods produced domestically. In other words trade barriers are almost never a good idea, they represent a beggar thy neighbor philosophy and generally result in poor relationships between countries. Although there are very rare circumstances where trade barriers may be called for it is infrequent and should be taken as a general rule that trade barriers are bad. Note Ricardo's comparative advantage theory. : • '''Indebtedness- Country A borrows money from country B and uses it in such a way that doesnt improve their economy. Country A will then borrow money from country C, in order to pay off country B's loan. This therefore causes indebtedness and is an international trade barrier. Generally to prevent this from happening institutions are put in place to provide assurance that countries will spend money well. See institutions for more info. : • Non-convertible currencies- Non-convertable curriences is when a country has a fixed exchange rate, so their country would not be able to buy or sell currencies. They won't be able to convert thier currieces which makes it harder for their country to import or export goods. Because their country is not able to import or export goods, their GDP must be pretty low since it's only their own country who is buying their own things. Not having a relationship with other countries as in imports/exports makes it harder for the country to become develope. • Capital flight- Capital flight is when foreign investments take all their money away from a country because something occured in their economy to "spook" them out of investing in that country. They decrease their investments and flow of money into the country. This is an international barrier to develpment because when the foreign investment is taken away, the investment in the country decreases which reduces the inward flow of money to the country. This doesn't help their growth in the slightest, and there would be less development in the country. Social and cultural factors acting as barriers :Social barriers to growth and development are any social issues that create barriers to economic development in either a moral or immoral way. These barriers are often results of philosophical and co-operative beliefs. : : :• Religion: '''Religion acts as a barrier to development because conflicting religions will fight, causing the country or countries to be less developed. Some problems may lead to persecution, which distracts the country so they put less time, and effort into developing their counrty. Another reason why religion acts as a barrier is because it ties into tradition. Some religions have certain rules and regulations that will halt the development process and slow it down. The ways of the old act as a barrier to development due to peoples fear of change. : :• '''Culture: Culture acts as a barrier to trade in a similar way as religion, meaning it prevents development through restrictions over what is socially acceptable. For example, if contraceptives are considered taboo, diseases such as AIDS will be more common in a country, lowering that country's human capital and chances for development. : :• Tradition: Tradationalism acts as a barrier to development because traditions are usually old and out of date as a result of social conservation. This means cultures with many traditions are at a disadvantage to other countries with more modern methods because those who believe in traditionalism do not want to change certain habits, and if the country does not change, it will never get developed. : :• '''Gender Issues: '''Most often, "gender issues" refers to misogyny, the hatred of women. If women are not allow to contribute to the economy and increase productivity, it is much harder for a country to develop. Having only men lead the government of a developing country can be a sign of corruption, which is present in many developing country's governments. Also, if male children are preferred over female, it can lead to infanticide. In extreme circumstances, there may be considerably less females in respect to males in the country and overall efficiency will decrease, thus hindering development. Category:Development Economics